MBS Day Ahead: Momentum Shift Confirmation

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Posted To: MBS Commentary

In the week just past, bonds rallied hard into the Independence Day holiday. 10yr yields hit fresh multi-year lows before getting slammed by a jobs report that came out much stronger than expected. The resulting weakness brought them in line with the highest levels from the previous week. The losses also changed the shape of certain technical patterns that help us track bond market momentum. One of the simplest examples is in slow stochastics (green/teal lines in the chart) where a break above the lower line signals a shift out of a bullish trend . In the week ahead, bonds will consider the various outcomes of such a shift. They're not always purely negative . The last 2 examples offer some clarity. In both cases, the prevailing bullish trend indeed took a break, but much of the overall…(read more)

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